California has joined seven other states and the U.S. Department of Justice in a lawsuit that accuses a Texas-based revenue-management software company of keeping rental prices in Orange County, San Diego and other regions artificially high.
The lawsuit accusing RealPage of using software that recommends rental prices to landlords based on private data was filed Aug. 23 in the Middle District of North Carolina. The bipartisan group of plaintiff states includes North Carolina, Colorado, Connecticut, Minnesota, Oregon, Tennessee and Washington.
“RealPage replaces competition with coordination,” the lawsuit states. “It substitutes unity for rivalry. It subverts competition and the competitive process. It does so openly and directly – and American renters are left paying the price.”
In response to criticism from media outlets and other litigation, RealPage in June responded to what it said were false allegations about its software, which uses data from competing landlords and makes rent price recommendations based on an algorithm.
The software benefits residents as well as housing providers, allows customers to decide their own rent prices and recommends prices that vary and are, in fact, lower than what critics have alleged, according to the RealPage statement.
“RealPage revenue-management software offers prospective residents and housing providers more options and flexibility in lease terms, aids compliance with Fair Housing laws, does not use any personal or demographic data to generate rent price recommendations and helps ensure that prospective residents have access to the best pricing available to everyone,” the statement says.
Daniel Yukelson, executive director and CEO of the Apartment Association of Greater Los Angeles, said the jury is still out on whether RealPage software is anti-competitive or illegally harms consumers.
“What I would guess is that the government plaintiffs are merely looking for yet another scapegoat to blame for increasing rents and government’s failure to encourage housing development and government’s failed housing policies, particularly here in California which has forced private property owners to endure very costly and punishing rent-control regimes, in some cases, for more than five decades,” Yukelson told the Southern California Record.
Complex housing regulations around the state, including eviction restrictions, rising insurance costs, mandatory inspections and increasing utility costs, lead to higher housing costs and rent increases, he said.
“Today we are failing to increase the supply of housing to meet growing demand, we have the worst homelessness crisis and have been spending billions of dollars on failed programs meant to address the issue, and we continue to see rents rising,” Yukelson said, adding that the state’s complex rental environment creates disincentives for investment in such housing.
But the California Attorney General’s Office argues that pricing alignments resulting from the software have affected rents throughout California but especially multifamily units in the Southern California communities of Anaheim, Santa Ana, Irvine, Riverside, San Bernardino, Ontario, Rancho Cucamonga, Temecula, Murrieta, San Diego and Carlsbad.
“RealPage misused private and sensitive consumer data to take the competition out of the rental industry, leaving renters no other choice but to pay the intentionally high prices that landlords agreed to set,” California Attorney General Rob Bonta said in a prepared statement. “This means that even if rental home supply was high, rent prices stayed the same, and in some cases, rents went up. This conduct is unacceptable and illegal, and given California’s current housing shortage and affordability crisis, it is causing real harm. …”
The lawsuit alleges the federal Sherman Act requires that economic markets should be free of “illegal monopolies” and illegal information sharing resulting from RealPage’s software.
“RealPage’s conduct is predatory and exclusionary, which has allowed it to distort the market opportunities for honest providers of revenue-management software,” the lawsuit says.
Bonta’s office noted in a news release that over the past 40 years, housing demand in California has outpaced supply.
“Housing costs have skyrocketed, making it harder for Californians to keep a roof over their heads,” the Attorney General’s Office reported. “California's 17 million renters spend a significant portion of their paychecks on rent, with an estimated 700,000 Californians at risk of eviction.”
The software enriches RealPage through steep fees from landlords at the expense of renters who are forced to pay inflated prices generated through a noncompetitive marketplace, the lawsuit states.